Key Takeaways
- • Citi Australia CEO Mark Woodruff says US Treasuries are becoming a weaker hedge against falling equities.
- • Woodruff cites rising government borrowing, sticky inflation and higher neutral interest rates as the forces eroding Treasuries' diversification role.
- • With stocks and bonds increasingly moving together, some investors are turning to hedge funds, credit and other alternative strategies.
Summary
Citi Australia CEO Mark Woodruff argues that US Treasuries are losing their effectiveness as a hedge against falling equity markets. Historically, government bonds have offset equity drawdowns, but Woodruff points to a set of structural pressures weakening that relationship: rising government borrowing, persistent inflation and a higher neutral interest rate. As stock and bond returns increasingly move in the same direction, some investors are reassessing their portfolio construction and allocating toward hedge funds, credit and other alternative investments in search of diversification.
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